Nigeria has had its fair share of a nascent economy. The growing market for car services on the Uber and Taxify platforms, credit providers like FarmCrowdy, and accommodation services like Airbnb is proof to the evolution of a new business model. This business model seeks to meet humans’ ambitious nature – the innate desire for improved social status – by providing consumers the privilege of maximising luxury goods like cars, houses, etc. without having to buy them. This new business model is makes up this is termed the sharing or gig economy.
The sharing economy represents that system of earning a living by the collaborative consumption of underutilized assets. The two-sided market – where two people come together facilitated by a third party for the purpose of exchange – is what facilitates the sharing economy. Here, the third party is any form of technology such as an application on a smartphone or a website and the internet.
In order to fully grasp the idea of the sharing economy one must understand that the term economy is not limited to trades involving commodities and money alone. It encompasses gift exchanges, monetary exchanges, and many other forms of exchanges taking place across different platforms and contexts, for example the gift exchanges that characterise Christmas season. James Carrier noted in his article, The Ritual of Giving, that gifts have a dual nature: “on the one hand, it is a commodity purchased in an impersonal transaction, and on the other it is an object given to express affection in a personal relationship”1. When gifts are purchased, it is only but a commodity, but when handed over to the recipient, it depicts affection and other personal social values. Gigging is different from the conventional economic system as it incorporates the idea of exchange and the social value identified in the gift exchanges, however these transactions are enabled via the use of technology. Therefore, the gig economy is defined as “an economic model based on sharing underutilized assets from spaces to skills to materials for monetary or non-monetary benefits”2. The model runs on the assumption that sharing resources such as cars, skills, time, etc. is more beneficial to everyone in the economy; the impact of which is the ease of utilising commodities without having to buy them.
Sharing Economy in Nigeria
Although paucity of data limits the availability of information on how much this economy is worth in Nigeria, its acceptance can be inferred mined from different online articles. In an interview by CNN, the general manger of Uber Nigeria revealed that in its first 16 months in Nigeria, Uber Lagos recorded 30% more rides than in its first 16 months in London3. This is plausible owing to the population of Lagos being 150% more than that of London. While Uber, Taxify and some other forms of the sharing business model have recorded some level of penetration in the market, others like Airbnb have not. The challenges of the sharing business model would be discussed later in this piece.
The challenge of accessing credits by smallholder farmers – who make up 80% of farming population in Nigeria4 – is being checked by the growing acceptance of the sharing economy in the financial sector. Start-ups like FarmCrowdy and ThriveAgric is bridging this capital deficiency by pulling finances from interested middle-class Nigerians to fund existing smallholder farmers for between N72,000 and N250,000 for a harvest cycle (which can last between five and six months depending on the crop or animal raised) and earn a share of the profits accrued to the investment. This service has seen influx of willing funders. The CEO of FarmCrowdy, Onyeka Akumah, says since its launch in 2016, the firm has gotten over 1,000 farm sponsors, recording a 76% rate of reinvestment. In addition, the time spent between launching a call for sponsors and response for investors on their platform has reduced from six weeks, when it started operation, to a little below 10 minutes in 2017.
One of the pioneer e-commerce companies in Nigeria, Konga, is dumping its pre-existing sales model – where it runs a warehouse and transport logistic – for the more cost-effecting sharing model – where they would only function to facilitate transactions between trade merchants listed on their platform and willing buyers5. This shift, though primarily a cost reduction strategy, also provides evidence to the traction the sharing economy is gaining within the nation.
Effects of the Sharing Economy in Nigeria
With a youth unemployment rate of 47.37% in Q4 20166, a business model that encourages the leasing of underutilised assets is good for job creation. The sharing economy was embraced by the youth population owing to the level of unemployment and underemployment. Youths, armed with available internet facilities and a smartphone, became willing participants offering car services to middle class Nigerians who need increased comfort when in transit from one place to another. In addition, the business model has also provided employed individuals the opportunity of building alternative income stream(s) by maximising their earning potentials, using their assets – skills, building, cars, etc.
The peer-to-peer lending facility provided by the sharing economy has become an easy source of investment capital for businesses especially in the informal sector. With the sharing economy, individuals who want to invest money are matched with those who want to borrow money, with banks or other formal lending firms out of the equation. With formal lending institutions out of the way, the ease of accessing and using loans increases and economic activities are promoted7. In addition, the interest rates become less restrictive as it would now be dependent on the market agents, the amount involved and the nature of investments.
Despite the jobs created, anecdotal evidences have shown that the sharing economy is not actually creating a purely incremental economic activity, but only changing the consumption pattern of individuals8, especially in sectors which already had established business models. For instance, a report by the Premium Times newspaper9 revealed the tales of woes by regular taxi operators. Their cries are that their daily turnover have been reduced remarkably since the emergence of the sharing business models of Uber and Taxify in the transportation sector. This disruption of existing industry models is not peculiar to Nigeria, as experiences in San Francisco, District of Columbia and New York, USA has also shown same effect of the gigging economy on other existing business models. In the USA, ‘Uber has had a negative impact on both the revenue of the taxi industry and on the values of the medallions (i.e., the taxi licenses).10’
Obstacles to, and Challenges of, the Sharing Economy in Nigeria
In a business model which relies on peer-to-peer exchanges facilitated by technology, some hurdles have to be surmounted to guarantee sustainability. The growth and sustainability of the sharing economy is hinged on the commoditisation of trust. In Nigeria, the level of trust for digital transactions is low and this has posed threat to the ease of sharing. Uber and Taxify has been able to circumvent this distrust via the pay-on-delivery option; however, Airbnb is still struggling to bye-pass this obstacle. Ensuring good social capital is central to the growth of this business model in Nigeria. To overcome the trust challenge, most of these platforms have developed a form of up-front screening, an external feedback mechanism and external enforcement. For example, Uber does a background check on its drivers and vehicles before accepting them. It also has an anonymous feedback system where both drivers and riders rate one another after each ride, and the feedback can be used to eliminate risky drivers or riders. Finally, it protects each ride with insurance coverage.
In addition to the challenge posed by lack of social trust, the Nigerian economic space still drags behind in the acceptance of transactions over web-based platforms. This is solely due to concerns over the sustainability and security of electronic transactions which has over the years recorded tales of frauds, technical problems with transactions, as well as concerns about safety of information provided on these platforms11. These challenges have hindered the adoption of web based financial transactions which is one major component of the sharing economy.
Regulatory oversights by relevant bodies/agencies could also be an uphill task. Most sharing platforms utilise independent contractors in the provision of services, and as a result are not responsible for the provision of employment benefits such as health or disability insurance. From a worker perspective, having variable hours and perhaps higher pay can compensate for less stable and secure income. The entry of peer-to-peer businesses into markets such as hotels and taxis also has opened a heated debate over local regulation. For example the Lagos state government has reviewed its taxi regulatory policy. In this new policy, taxi operators are required to apply to obtain a franchise license12. However, challenges arose with respect status of ridesharing platforms. The Lagos state government assume these platforms to be taxi operators13, but the firms providing car services via the sharing economy don’t own vehicles, they only connect vehicle owners to those who need their services. A recent ruling by the EU regard the status of Uber as a taxi operator might have serious implication on how they are viewed world over.14 Other regulatory questions would arise from the activities within this business model – how to avoid hindering innovative entrepreneurs while ensuring that risk is not disproportionately borne by consumers and suppliers of services? Moreover, how would the income generated through activities that are still largely informal and unregulated be tracked?
Besides regulation, formalising the activities in the sharing platform is central to tax inclusion for its players. In a country like Nigeria, with a low tax-to-GDP ratio and where its informal sector provides a significant part of its GDP, this could pose challenge to tax administration.
The growth of the sharing economy in Nigeria as pioneered by Uber and FarmCrowdy reveals the potential in this business model. However, ensuring a successful enterprise in this economy would have firms overcoming the challenges posed by lack of social trust and the apathy toward electronic transactions in Nigeria. Provided these challenges can be overcome, the sharing model has the propensity to increase wellbeing of some via job creation, and disrupt same for others. In addition, it would also pose regulatory challenges to government agencies especially tax agencies. All in all, gigging is set to build shared prosperity by unveiling an economy built around clicks.